AMPLIFY  VOL. 36, NO. 12
  

The host of a fundraising event exchanges tickets to the event for contract work on his home. This is revealed to his fundraising event partners after an accounting audit reveals discrepancies.¹ MBA students analyzing this situation often acknowledge the possibility of an ethical problem, typically identified as a lack of transparency, but conclude that no one is harmed. The director of quality assurance (QA) in a manufacturing company decides to certify new products as having completed all QA checks, despite not actually completing the process, to get the product to market faster.² Students describe this as being an agile organization and say it is necessary to remain competitive. This situation is also perceived to cause no harm.

These two cases represent sneaky ethical problems because the harm can be difficult to see. The fundraiser guests that paid for their tickets effectively paid the contractors who worked on the host’s home. The customers who bought products that were not fully tested for quality were not getting the assurance for which they paid. In these cases, decision makers and executives failed to notice the moral dimensions of their business decisions.

These problems are sneaky because cognitive biases that creep into our decision-making cause us to overlook their ethical implications. The biases detected in the decision-making problems illustrated in these two cases (and in many current corporate scandals) include nonmonetary transactions, the framing effect, and ill-conceived goals.

Ensuring that sneaky problems are noticed and not overlooked is a function of the character of the decision makers. For example, leaders who collaborate and exhibit humanity are more likely to think about the impact of their decisions on a variety of stakeholders. Stakeholders are more visible to collaborative leaders who tend to look for input from others. Similarly, leaders concerned about the welfare of others are more likely to ask questions about the consequences of decisions on the well-being of stakeholders.

Problems & Biases

Nonmonetary Transactions

Dan Ariely and colleagues conducted a series of experiments to test whether dishonesty increases when transactions are conducted using tokens rather than cash and found that dishonesty increased dramatically.^3,4 Most people understand that taking cash is theft and is morally wrong. But when a transaction involves a barter, such as the fundraiser, or is one or more steps away from cash, the loss is much harder to see and is often ignored.

For example, employees who would never take company money from a cashbox do not think twice about taking home a ream of printer paper for personal use. Such decisions are often seen as harmless because the harm is not as easily perceived. QA affects a product, so it is an engineering issue, not an ethical one.

In 2016, it was revealed that Wells Fargo employees had created millions of fake accounts to reach aggressive cross-selling goals set by management.^5,6 Employees opened savings or credit card accounts without the account holder’s knowledge. However, any money transferred from a checking account to a savings account remained safely in the savings account. Since no money was directly taken and all transactions were digital, it was easy to justify the actions as not harming anyone.

The recent implosion of cryptocurrency exchange FTX and the allegations of fraud against the founder, Sam Bankman-Fried, is another example. Cryptocurrency is a digital currency that is even more abstract than the tokens used by Ariely and colleagues in their experiments.⁷ “Federal prosecutors have charged Mr. Bankman-Fried with orchestrating a vast scheme to siphon billions of dollars of FTX customer money into political contributions, real estate purchases, charitable donations, and venture investments,” wrote the New York Times.⁸ It is not hard to imagine that Bankman-Fried had difficulty envisioning how his transfers from one business to another might result in harm since it was just digital manipulation.

Framing Effects

Framing is choosing how information is going to be presented to decision makers.⁹ 

Organizations increasingly need to be able to respond to rapid environmental changes, so a desire for organizations to become more agile is a reasonable response. When cutting corners on QA or safety is framed as organizational agility, employees may fail to recognize there is the possibility of harm. Agility is a positive attribute; it implies resilience and rapid adaptability. When employees are presented with an organizational agility process, they may see it as necessary to help the company change more quickly rather than a reduction in QA or safety.

Similarly, when the fake accounts were detected at Wells Fargo, they were framed as being a consequence of a few bad apples. Then there‘s the tragic case of the Boeing 737 MAX, which was framed by the need to rapidly develop the MAX as critically important. Despite the significant reengineering required by the rapid development, Boeing released the jet with the assurance it would not require pilot retraining in order to make the plane an attractive alternative to its competition. A few months after its release, two planes crashed because of a software problem, resulting in the loss of 346 lives. Boeing framed the redesign of the 737 and its hasty deployment as an engineering problem.¹⁰ Framing the issue as speed, not quality, caused decision makers to overlook the moral implications of their decisions.

Ill-Conceived Goals

Business leaders are encouraged to create audacious goals to motivate employees to greater heights of creativity and efficiency. It is not a huge surprise that leaders may develop audacious goals without thinking about their potential negative consequences.¹¹ There is no evidence that Wells Fargo’s CEO or CFO anticipated that their extremely challenging sales goals would result in the creation of millions of fake accounts. Boeing executives set an ambitious date to deliver a new product, resulting in hasty decisions. The recent federal investigation of poultry producers Tyson and Perdue is another example.¹² By encouraging their suppliers to reduce their costs, both companies are alleged to have inadvertently encouraged them to employ low-wage migrant children.

Remedies

The most common remedies for overcoming these types of biases and improving decision-making are: (1) awareness of the existence of such biases and (2) collaboration with others when making decisions.¹³ Another remedy involves an ethical organizational culture, wherein employees and executives are empowered to notice and raise ethical concerns about important organizational decisions.

Ethical organizational cultures are desirable if only because being ethical is something most people want to be (and there are notable benefits such as reduced employee turnover).¹⁴ There are also potential financial implications, as many unethical organizational activities are also illegal. Wells Fargo and Boeing lost far more money in fines and legal judgments than they earned because of their decisions.

Not all unethical decisions result in scandal, but each unethical decision represents a risk to the organization. Organizations routinely manage risk, but while some risks are beyond management control, ethical decisions are entirely within management control. Reducing one source of risk appears to be a wise course of action.

The scandal of Wells Fargo and the debacle of the Boeing 737 MAX suggest a failure of leadership to recognize that some decisions have a moral dimension. The failure to address the moral dimension led to employees making decisions based on the reward systems of the organization, which led to actions that harmed large numbers of people.

Creating an ethical culture starts at the top. The ethical tone of an organization is established, maintained, and modified by the company’s leaders. The willingness or ability of leaders to recognize, address, and openly talk about the moral ramifications of organizational decisions determines the degree to which employees will themselves discuss those issues and act on them.

Leadership character is central to moral decision-making and to ethical leadership. Moral awareness is the capacity to recognize the moral implications of the decisions being made.¹⁵ In an article about leader character, Mary Crossan et al. describe character as a combination of personality traits, values, and virtues.¹⁶ They further identify 11 virtuous dimensions of character: humility, collaboration, integrity, justice, courage, temperance, accountability, humanity, transcendence, drive, and judgment.¹⁷ It is the existence or absence of these virtues that plays a role in the ability of a leader to detect and appropriately analyze the ethical dimensions of the strategic decisions they make. This model provides insight into the impact of leader character on an ethical organizational culture.

Humility

Humble leaders understand they do not have all the answers and cannot be an expert in everything. Consequently, they are more likely to seek out other opinions and analyze a decision more thoroughly. Humility might have led the QA director from the introduction of this article to discuss the problem of time pressure with her bosses, rather than assume that she knew what they prioritized. An overconfident or arrogant leader is more likely to jump to conclusions using whatever information is easiest to access. Humble leaders are more likely to notice ethical problems precisely because they are aware of their limitations and are attempting to compensate for them. Humility also leads executives into being more open to learning. Openness to learning and the willingness to accept the limits of one’s knowledge allow an executive to seek out collaboration. 

Collaboration

Leaders willing to collaborate are also willing to entertain viewpoints different than their own. Collaboration also often involves some level of compromise. Through collaboration, leaders recognize that their desired outcome may not be the outcome that is in the best interest of the organization or society. The fundraising host who bartered tables for construction work might have reconsidered that course of action had he collaborated with his partners. Similarly, students analyzing the problem might have better recognized the problem had they discussed the case with their classmates. The added perspectives from collaboration also increase the probability that an ethical issue will be uncovered and considered. Information sharing and disagreement within collaborative groups lead to increased data gathering and an expansion of alternative solutions.¹⁸ Leaders who visibly collaborate with others in making difficult decisions model collaborative behavior for the rest of the organization.

Integrity

Leaders with integrity act on their promises and are consistent in their decisions and fair in their judgments. We generally perceive these leaders as people who do what they say they will do and do it honorably. A leader with integrity models positive behavior for the organization. Adherence to a code of moral values means that organizational decisions are measured against that code as one determinant of decision quality.

Justice

A fair leader looks at decisions from the perspective of its consequences for all pertinent stakeholders, not only to the company. An executive-level focus on justice, both organizationally and socially, encourages such a focus by subordinates. A leader concerned with justice will expect employees to act with integrity in their interactions with the company and its stakeholders. When executives ask about the consequences of a decision beyond its potential profit impact, employees learn to think beyond cost and revenue when presenting problems or ideas to executives. When justice is an explicit concern of management, it becomes one of many variables that employees consider when making their case for potential solutions to management.

Courage

As we are reminded from a very young age, being ethical and doing the right thing often requires courage. It takes a good deal of courage to explain to a board of directors (and consequently to stockholders) that one misjudged the market and does not have a new product able to be delivered in time to meet a competitor offering, as Boeing might have done. When stockholders and boards of directors demand increased profit, market share, or dividend payments, it takes tremendous courage to delay a product launch until the product meets the promised specifications. Often, courage is envisioned as the persistence of pursuing a bold idea in the face of setbacks and doubt. Just as often, courage is saying no when a potentially profitable idea has the potential to harm. Executives with the courage to require moral decisions and actions create a worthwhile model for employees to follow.

Temperance

Temperance is the quality of being even-tempered and prudent. Risk taking tends to be a valued attribute in organizations, but it must be tempered by the judgment of feasibility and ethical appropriateness. Prudent leaders are more conscientious and more likely to engage in the type of premortem that Daniel Kahneman (author of Thinking, Fast and Slow) recommends as a way of anticipating unintended consequences.¹⁹ A premortem involves brainstorming the ways a plan could go wrong. Actively seeking out opposing points of view and asking not just how a decision will benefit the company but the ways in which a decision might be unethical and risks hurting the company open avenues of inquiry for employees implementing strategic directives.

Accountability

Accountability means taking responsibility for the outcome of an action, even when that outcome is unintended or unanticipated. Leaders who hold themselves accountable for decisions, regardless of their outcomes, are more likely to think through those decisions carefully before acting on them. For example, an accountable leader would want to understand the potential risk to product quality in skipping QA steps. A leader who holds themselves accountable will also hold employees accountable for their decisions. A leader who values accountability is unlikely to accept or participate in the “blame game” when an unethical decision results in harm.

Humanity

Humanity is exemplified by compassion, empathy, and consideration of others. Ethics involve matters of serious consequence to human well-being, and leaders with concern for that well-being are more likely to notice the ethical implications of decisions. A leader high in humanity is more likely to question the wisdom of skipping safety steps or circumventing the QA process because of the implications for human harm those shortcuts might produce.

Too often, the only variables considered when making important decisions are those than can be easily quantified. However, quantifying the cost to a child of forgoing an education to work at a meat-processing plant is much harder than quantifying the savings of employing a low-cost migrant child rather than an adult with legal status. Leaders with a focus on humanity as well as success understand that not all consequences of a decision can be easily quantified. Such considerations will instead be made based on their benefit to human well-being. When humanity is an organizational value, the full implications of sneaky problems are more likely to be noticed because of their consequence for human welfare.

Transcendence

A transcendent leader is a future-oriented, inspiring decision maker. A transcendent leader is not just concerned with quarterly revenue targets but with a vision of what the company could be. An appreciation for beauty and excellence in many forms helps transcendent leaders envision a company and a community that is fulfilling not just financially but also aesthetically and even spiritually.

A transcendent leader is dissatisfied with decisions that morally compromise. Sneaky problems will be more noticeable to leaders interested in always being better. Taking customer funds and using them to fund one’s investment operations, as Bankman-Fried allegedly has done, is not the path to growth, stability, and creating a sustainable business enterprise. A transcendent leader inspires employees to hold themselves to a higher standard of performance. That higher standard will reduce the number of unnoticed — and unaddressed — sneaky problems occurring in a company.

Drive

A leader who exhibits drive strives for excellence, is passionate and results-oriented, and leads employees toward greater achievement. Unchecked by the other traits of leadership success, drive can lead executives into making hasty decisions, especially when the probability of additional profit seems high. Drive, untempered by humanity, integrity, and temperance, may have led executives at Wells Fargo, Boeing, and FTX to overlook or not notice the ethical pitfalls of their decisions. A leader striving for excellence will be interested in excellence in all aspects of a decision, not just the financial ones. The pursuit of new ideas, new opportunities, and new achievements will be moderated by temperance, humanity, and integrity to ensure that the outcomes achieve excellence.

Judgment

Judgment, which Crossan et al. define as situational awareness, cognitive complexity, and pragmatism, helps leaders deal with ambiguity.²⁰ Ethical situations are often ambiguous. Leaders with good judgment are more likely to notice the potential impact of these decisions and their consequences for a variety of stakeholders. Leaders exercising judgment are not as likely to jump to conclusions or accept the first solution to a problem.

Judgment causes leaders to conduct a deeper critical analysis of the problems they face and to deploy integrity, courage, and temperance in fearlessly examining a problem and encouraging the development of many alternative solutions. Such an analysis is likely to reveal the moral dimensions of each alternative along with their financial implications.

Someone with good judgement would consider the longer-term consequences of skipping QA steps to get a product to market sooner or think through who might be impacted in a barter arrangement. Similarly, better judgment might prompt the students in the introduction of this piece to think about the cases further, rather than accepting the first conclusion that comes to mind.

A leader with good judgment recognizes that moral compromises may lead to a slippery slope that can end in scandal, or worse. In an organization led by such a leader, sneaky problems are more likely to be noticed, examined, and analyzed in ways that permit a pragmatic, ethical solution.

Conclusion

Leaders who exhibit positive character traits model those behaviors for their organization and encourage employees to do the same. Ethical organizational cultures are not created through slogans or organizational statements; they arise from the everyday interactions of employees. Employees who observe managers and executives acting with integrity and making business decisions that are both organizationally effective and ethical will, in turn, make ethical and effective decisions. The moral consequences of sneaky problems are more likely to be noticed and openly discussed and debated so that an ethically sound, organizationally beneficial decision can be reached.

Most of us are ethical people who wish to work with people who have high moral character. Leaders who recognize that healthy organizations are not just profitable, but also ethical, will create cultures that sustain an organization over time.

References

¹    Carlin, Barbara. “Aid for Veterans.” Unpublished case study developed for use in graduate ethical leadership class, 2017.

²    Bartlett, Clare. “To Ship or Not to Ship.” Markkula Center for Applied Ethics, Santa Clara University, 26 August 2015.

³    Mazar, Nina, and Dan Ariely. “Dishonesty in Everyday Life and Its Policy Implication.” Journal of Public Policy & Marketing, Vol. 25, No. 1, April 2006.

⁴    Mazar, Nina, On Amir, and Dan Ariely. “The Dishonesty of Honest People: A Theory of Self-Concept Maintenance.” Journal of Marketing Research, Vol. 45, No. 6, December 2008.

⁵    Morgensen, Gretchen. “Phony Accounts Resurface at Wells Fargo, with a Twist.” NBC News, 4 August 2023.

⁶    “Wells Fargo Agrees to Pay $3 Billion to Resolve Criminal and Civil Investigations into Sales Practices Involving the Opening of Millions of Accounts Without Customer Authorization.” Press release, US Department of Justice (DOJ), Office of Public Affairs, 21 February 2020.

⁷    Mazar and Ariely (see 3).

⁸    Yaffe-Bellany, David. “What to Know About Sam Bankman-Fried’s Fraud Trial.” The New York Times, 3 October 2023.

⁹    Kahneman, Daniel. Thinking, Fast and Slow. Farrar, Straus and Giroux, 2011.

¹⁰  “The Boeing 737 MAX Aircraft: Costs, Consequences, and Lessons from Its Design, Development, and Certification — Preliminary Investigative Findings.” US House Committee on Transportation & Infrastructure, March 2020.

¹¹   Bazerman, Max H., and Ann E. Tenbrunsel. “Ethical Breakdowns.” Harvard Business Review, April 2011.

¹²  Weber, Lauren. “Perdue and Tyson Under Federal Investigation Over Child Labor.” The Wall Street Journal, 24 September 2023.

¹³  Gentile, Mary C. “Ways of Thinking About Our Values in the Workplace.” Babson College, 2010.

¹⁴  “Shaping an Ethical Workplace Culture.” Society for Human Resource Management (SHRM) Foundation, 2013.

¹⁵  Trevino, Linda Klebe, and Michael E. Brown. “Managing to Be Ethical: Debunking Five Business Ethics Myths.” The Academy of Management Executive, Vol. 18, No. 2, May 2004.

¹⁶  Crossan, Mary M., et al. “Toward a Framework of Leader Character in Organizations.” Journal of Management Studies, Vol. 54, No. 7, November 2017.

¹⁷  Crossan, Mary, William Furlong, and Robert D. Austin. “Make Leader Character Your Competitive Edge.” MIT Sloan Management Review, Winter 2023.

¹⁸  Rock, David, and Heidi Grant. “Why Diverse Teams Are Smarter.” Harvard Business Review, 4 November 2016.

¹⁹  Kahneman (see 9).

²⁰ Crossan et al. (see 17).